Coal and gas are facing a mounting threat to their position in the world’s electricity generation mix, as a result of reductions in cost for wind, solar and batteries, according to research from Bloomberg New Energy Finance (BNEF).
BNEF’s latest report on the levelised costs of electricity (LCOE) for all the leading technologies finds fossil fuel power is facing an unprecedented challenge in all three roles it performs in the energy mix – the supply of ‘bulk generation,’ the supply of ‘dispatchable generation,’ and the provision of ‘flexibility.’
In bulk generation, the threat comes from wind and solar photovoltaics, both of which have reduced their LCOEs further in the last year, thanks to falling capital costs, improving efficiency and the spread of competitive auctions around the world.
In dispatchable power, the challenge to new coal and gas is coming from the pairing of battery storage with wind and solar, enabling the latter two ‘variable’ sources to smooth output, and if necessary, shift the timing of supply.
In flexibility, stand-alone batteries are increasingly cost-effective and are starting to compete on price with open-cycle gas plants, and with other options such as pumped hydro.
“Our team has looked closely at the impact of the 79 per cent decrease seen in lithium-ion battery costs since 2010 on the economics of this storage technology in different parts of the electricity system,” BNEF head of energy economics Elena Giannakopoulou said.
“The conclusions are chilling for the fossil fuel sector.
“Some existing coal and gas power stations, with sunk capital costs, will continue to have a role for many years, doing a combination of bulk generation and balancing, as wind and solar penetration increase.
“But the economic case for building new coal and gas capacity is crumbling, as batteries start to encroach on the flexibility and peaking revenues enjoyed by fossil fuel plants.”
BNEF calculates LCOEs for each technology, taking into account everything from equipment, construction and financing costs to operating and maintenance expenses and average running hours.
It found in the first half of 2018, the benchmark global LCOE for onshore wind is $55/MWh, down 18 per cent from the first six months of last year, while the equivalent for solar PV without tracking systems is $70/MWh, also down 18 per cent.
Offshore wind’s LCOE is $118/MWh in 1H 2018, down 5 per cent.
BNEF’s analysis showed particularly low LCOE for onshore wind in India, Brazil, Sweden and Australia, and particularly low LCOE for photovoltaics in Chile, India, Australia and Jordan.
BNEF head of Europe, Middle East and Africa Seb Henbest said competitive auctions for new renewable energy capacity have forced developers, equipment providers and financiers to bear down on all the different costs of establishing wind and solar projects.
“Thanks to this and to progressively more efficient technology, we are seeing record-low prices being set for wind and solar, and then those records being broken again and again on a regular basis,” he said.
“This is having a powerful effect – it is changing perceptions.”
In the nine-year period since BNEF began the study, the global benchmark LCOE for solar PV without tracking has tumbled by 77 per cent, and that for onshore wind by 38 per cent.
LCOEs for older established sources, such as coal, gas, nuclear and large hydro, have seen only very modest reductions, at best, in that time – and in some countries, they have actually increased.
BNEF’s lithium-ion battery price index shows a fall from $1000 per kWh in 2010 to $209 per kWh in 2017.